Banks make millions in fees off of welfare recipients

by Bob Morris, published Oct 19, 2010

When most of us withdraw money from an ATM, we aren't charged fees. Yet, welfare recipients in California are routinely charged to make withdrawals. Banks are making nearly $1.5 million a month in fees for the same service they give regular customers for free. Plus, this is essentially risk-free for them. The state transfers the money in, the bank makes a profit on that money by making overnight loans on it (this is quite normal), then doles out the money when a welfare recipient makes a withdrawal at an ATM. So why the extra charge on those least able to pay it?

A welfare mother of two gets a maximum of $694 a month. Paying $20-25 a month in fees is 3-4% of her total income. This is from many of the same banks that were bailed out by the federal government! Even worse, the fees are increasing, and have in fact doubled since 2008. Many of the recipients are too poor to open a free checking account. But again, this is a completely riskless transaction for the banks, and they make a profit on the money while it is on deposit.

Unlike most bank networks, the Qwest network does allow four free transfers per month. California says they try to educate recipients about this. But, this is half-hearted and certainly inadequate. Ludicrously, a Department of Social Services spokesperson says the state has no control over bank fees. Well that's just silly. The state could pass a law or the appropriate agency could set limits on fees. Problem solved.

Is there welfare fraud? Absolutely. But, Gov. Schwarzenegger clamped down hard last year when welfare recipients were found to be making withdrawals at casinos even if, ahem, he knew about it as far back as 2006. Budget negotiations are certainly a fine time to bash those on welfare, apparently. This may come as a shock to many, but a few welfare cheats are not the primary cause for the catastrophic state of California's finances.

Charging steep fees to those least able to pay (or fight back) is deplorable. The state should stop these abuses. And while we're at it, could we also stop the extremely high costs of calls from prison inmates to those on the outside? Calls from inmates must be made collect (no doubt so the companies can charge more.) The calls are expensive with many extra charges and fees being levied. It is important to realize that burden here does not fall on the inmate, but on their families, on those being called. So either the family doesn't take the calls or they have to pay $3 a minute (or more.) Several states already have greatly reduced fees for prison phone calls. California should do the same.

About the Author

Bob Morris

Bob has been blogging since 2003 at Politics in the Zeros on progressive politics, populism the economy, renewable energy, and cleantech.
He helped organize numerous antiwar protests from 2004-2007, some of which were massive. He was Co-coordinator of the Green Party of Los Angeles County Council from 2002-2004.
His politics tend towards left-wing populism and is especially interested in issues that transcend party lines and bring people together. He and his wife live in Silicon Valley.